The Macro Business Environment - Assignment Example

Running Header: The macro business environment Student’s Name: University: Course Title: Instructor: Date: The macro business environment Introduction As a result of various research work and publications over the last decades, it has been noted that most western nations are staring at stagnation. The stagnation presents itself in the form of economic growth and development, population dynamics, health care, social welfare programs and taxation regime. These crises were more exposed during the recent recession experienced worldwide (The economist, 2011). The problems currently faced by western world and other developed nation like Japan includes but not limited to high and persistent budget deficit, an ageing population making increasing claims upon health and welfare spending, highly unionised public sector workforces protective of their privileges and resistant to work changes, low growth placing increasing pressure upon the tax base, and a population reluctant to face the prospect of diminished expectations. This paper evaluates the policy option available to the governments so as to curtail the situation. It goes further to examine the stress these factors shoulder unto the politicians and lastly through an in-depth thought the paper explores business opportunities that might arise due to the situation. Discussion 1: The problems, stress to politicians and policy options High & persistent budget deficit and low growth placing increasing pressure upon the tax base It has been noted all over that ageing population contributes to sluggish economic growth. In order to meet this deficit, spending must be reduced or taxpayers have to dig deeper in to their pockets. These two approaches have contributed to ideological political battles. The battle is drawn between taxpayers on one side and the beneficiaries. One possible battle that has been witnessed even at recent times in Greek is the battle of tax payer and public sector workers. In some countries, one party can be seen as representing taxpayers (the Conservatives in Britain and the Republicans in America) and the other the workers (Labour and the Democrats, respectively). In addition, the friction is likely to be felt in generation discontent. For instance in US the largest medium term budget consumers are pension and health care for the old (The economist, 2011). The headache to the politicians lies with how to balance a comfortable life for senior citizens owing to their earlier contribution in terms of social benefits like pensions and health care and how not to burden the already overburden tax payers who are also a few. This headache is a reality since most of the senior citizens have retired and now are dependent on their children or the state for welfare services. At this moment in terms of productivity, they do not contribute much yet they have to be sustained. This scenario has led to tax deficit for most western countries who now invest much in recurrent expenditure rather than capital projects. This deficit and tax burden has also led to the growth of discontent among working class as they feel they are deprived of their hard earned income. Apart from the deficit, in terms of health care investment, the government has been forced to re- evaluate its position towards this as most of the patients now are aged ones (The economist, 2011). The part of solution and policy measures towards this, is through increment of retirement age so that the elderly can continue to work towards economic progress of the country while also earning an income. This approach would act as a two double edged sword as the tax burden will be at least be spread out and the government would be able to reduce tax deficit as there will be reduction in spending on social welfare programs (Crouzet, 2001, p. 232 and 233). An ageing population making increasing claims upon health and welfare spending The demographic change being experienced in the western world and other developed nations is as a result of two trends. The first contributory factor is the declining fertility rate while the second is the increased life expectancy. Muenz Rainer 2007 p. 2 notes that Europe and Japan have entered the phase of reduced demographic growth and they are likely to be worst hit by population decline during the first half of 21st century. For instance in Europe the population for the age bracket of 0-15 has significantly declined. This decline being experienced, has translated to decline in working age population and a possibility of a shrinking domestic native labour force. This concern is reinforced with a projection that one time especially Europe which exhibits the highest extremes in terms of fertility rate and life expectancy will experience an excess of deaths over births. With the low fertility and increasing life expectancy as a result of declining mortality at higher ages, shrinking number of younger people, an ageing workforce and an increasing number and share of older people, politicians and other policy makers have be drawn into a dilemma over the best approach (Muenz, 2007, p. 5). The concerns that are at centre stage by now are pay-as-you-go systems based public pension regimes and private funded pension plans; Secondly, is the concern of the impact of longevity in relation to expenditure on health care; Thirdly, the effects of ageing on future innovation and productivity; Lastly, the concern of immigration as a solution to ageing and shrinking population (Muenz, 2007, p. 4). As a solution to the above concern especially demographic aging on the work force, countries through their politicians and policy makers should try the following measures. The first policy attempt should be geared towards higher labour force participation rates particularly to countries where participation rates of women and immigrants are below average. Secondly, a higher retirement age should be ensured so as to guarantee continued supply of work force chiefly in countries where retirement age has hit below 60 years. Lastly is the development of pro-active economic migration policy in countries with current and future shortages of labour (Muenz, 2007, p. 10 and 11). Highly unionised public sector workforce protective of their privileges, resistant to work changes and population reluctant to face the prospect of diminished expectations One of the decision challenges to the political leaders in these countries is how to reduce budget deficit through austerity measures in terms of spending reduction of tax increase yet they face highly unionised public sector workforce protective of their privileges, resistant to work changes and population reluctant to face the prospect of diminished expectations. This challenge has been noted in Canada, England, France and Greece (The economist, 2011). This kind of occurrence place the government on a tight schedule on how to meet the requirements of the general economic good for the nation and the economic good of different section of the population. Since most of the western nations have some sort of welfare programme in operation, a solution to this kind of challenge would be in the form of policy mixes and institutional reform which is politically feasible and socially acceptable. These case examples can be drawn from western countries like Netherlands, Portugal and Denmark which has been able to phenomenally apply these concepts to a success position. The first approach is through robust macroeconomic approach policy through striking a balance between capital mobility, monetary autonomy and fixed exchange rate. The others are through wage moderation, employment friendly and efficient taxation and social protection. Lastly, approach like institutional coordination can help reduce the above noted friction. This calls for innovation especially between liberals and conservatives (Ferrera, Hemerijck and Rhodes, 1990, p.45-55). Discussion 2: business opportunities that might arise due to the situation While in current western world situation and trend might look gloom, in a strategic view and in-depth examination there is a light at the end of the tunnel. According to Bhimani, 2008, he observes that the trend presents challenge to others, while on the other hand it is an opportunities for others. The first opportunity that is likely to rise out, is the growth of competitive pricing and salary reductions across lesser skilled as well as knowledge intense professions. This will greatly help business and government which is faced with huge wage bills and population which is not willing to conform to change in terms of lifestyle. The other observation that makes a business opportunity is that works that dot need interpersonal contact will command lower pay allowing for firms to outsource the services at a cheaper cost from known outsourcing destination like India. In addition, businesses which would be able to develop models with more refined ways of extracting value or accelerating through output would be in a prime position to tap in a wider scope and applicability. Not only the above opportunities exist but also businesses which are able to hasten the flow of out put at reduced cost will harness a windfall of returns. The other opportunities will rise in the form of property sale.bit is noted that realistic property prices reflects expected rental returns. When downfalls are predicted, sellers can become too realistic and panic. This panic will create an opportunities for buyers to benefit from the effects of over blown recessionary sentiments in pricing. Apart from these, rental demand for residential properties from migrants will likely to continue to boost the rental property market. Lastly, business opportunities will exist for firms and entrepreneurs who will be able to attain competitive pricing of products and positioning in the event of lower costs and greater diversity (Bhimani, 2008). Conclusion The current situation being experienced in western world and the projections can be viewed as a blessing in disguise. It is in the initial stages of the slow growth rate of the population that the western worlds were able to save and reduce dependency ratio. Yet again, this has struck them in old age. While at initial it was healthy, now the countries are facing a looming dilemma in terms of labour force decline, increase in immigration, and increase in social welfare programmes for the aged which translates to higher economic costs since most are not productive. This kind of dependency noted creates allot of tax burden to the working class who are also diminishing in numbers. Further, the ageing population is placing strain in health care facilities as most are prone to opportunistic infections. The above trends can only be reversed n long term through proactive measure like encouraging child bearing through tax relief, wide spread use of technology in reproduction health such as surrogate mothers and test tube babies. Otherwise as noted by Bhimani, 2008 the economic power of western world is like to decline and be relinquished to China, India and Latin America. References Bhimani Alnoor 2008, Economic trends in Europe: seeing risks as opportunities. Viewed 9th November 2011 from: http://www.theismaili.org/cms/347/Economic-trends-in- Europe-Seeing-risks-as-opportunities Crouzet Francois 2001, A history of the European economy, 1000-2000, Virginia, University of Virginia press. Ferrera M, Hemerijck A and Rhodes M 1990, The future of social Europe: recasting work and welfare in the new economy, viewed 9th November 2011 from www.zoot.unifi.it/relazioni...studi.../Ferrera_Hemerijck_Rhodes.pdf Muenz Rainer 2007, Aging and demographic change in Europe societies: main trends and alternative policy option, SP discussion paper No. 0703 The economist 2011, Dealing with the fiscal deficits: sharing the pain, viewed 9th November 2011 from: http://www.economist.com/node/15604130 Read More